All Forum Posts by: Dion DePaoli

Kevin,

Looks like you work for Evergreen.  I think the barriers you will find in feedback from investors on BP is related to costs when it comes to "full service" servicing.  Often times newbie investors race to the bottom of servicing services seeking to pay as little as possible but wanting all the bells and whistles of full service.  

Using @Bob Malecki's response as an example, which I like Bob, he is a great guy, but the only one to respond thus far, tax monitoring is a service offered in all full service platforms for around $5 per loan.  As I am sure you know.  Same with Single Point of Contact.  Dashboards tend to be more advanced at more expensive servicers as well.  

Often times it seems newbies get into the loan space only to find out they need more tools than the latest greatest guru seminar told them about which is roughly a FC attorney and some form letters.  Just as often those investors think they want to "manage it all" only to find staying on top of the wide variety of vendor services such legal, tax and property is in fact a full time job aside from loss mitigation.  The notion of "high touch" servicing is sort of lost in the pitch they were sold on.  

Further, it seems the limited servicing platforms don't have much experience in the staff to properly guide the investor and push the loan's disposition.  The staff is a relay of information from the limited vendors they will interact with instead of a driver of action.  

I don't think there is much to build on with low touch loans that are performing.  Option to track taxes and insurance if not escrowed.  Collection efforts as loans go past due date.  

For delinquent loans I would look to the Servicer to have a more rapid collection effort.  More attempts of contact to prevent the loan falling into default.  

For defaulted loans, my Servicer should be aggressive and understand methods to collect or disposition quickly and efficiently.  Perhaps having a pre-planned iteration of treatments on the account to some degree setup.  Again, concepts that a larger investor would see in a bigger servicing contract.  

We seem to play pretty fast and loose with the term "Hedge Fund".  More often than not, the Seller is not an actual hedge fund.  Nor does transacting with a Hedge Fund mean much beside, they have more money than you.

This new trend of Sellers asking for percentages of Total Payoff is rubbish(!).  Advances, fees and interest arrears can be challenged and reduced, if not eliminated altogether.  More likely than not newbies won't get enough due diligence data to investigate those sums to ensure they will be included in the judgement of foreclosure.  

The OP is correct, any amount over the approved Total Due will be remitted to junior interests.  Whether that come by way of owner sale, owner refinance or foreclosure auction.  

Most notes do not carry a default interest rate or an interest rate on advances. The margin on the UPB is only $2k. We don't know how much more will have to be advanced to actually disposition the asset either.

A DIL is not a viable option here.  A Mortgagee is only due the sums under the note.  A DIL in this situation could be deemed as unjust enrichment and overturned if an attorney gets involved or if there are any other junior interests.  Case and point, this borrower files for BK and the rest of the creditors go after their rightful claim to some of that equity to pay themselves off.  

Equity in a loan is a good thing because it gives the Mortgagee the ability to know that advances and fees can be recouped through that equity. So loans with lots of equity (low LTV) can be purchased as a higher percent of UPB knowing that some interest will still accrue and advances will be paid back. However, advances may not earn any return.

If a property sells at FC auction, it doesn't revert back to the Mortgagee and the Mortgagee is only due sums under the note.  All surplus goes to junior interests in priority of title.  A mortgage is only foreclosed once, it doesn't go "back" to the auction unless the foreclosure was overturned and redone.  

Before we mistakenly look to the real property as the end all-be all, you need to deal with the actual asset which is the security instrument (deed of trust/mortgage) and note.  

As @Chris Seveney rightly points out, if we have a UPB of $1.04m and a property value of $2.0 the borrower should have some capacity to sell the property or potentially refinance. The fact that is not on the table and the asset has defaulted in 2014 and 2017 warrants some more digging. He also rightfully told you, a mortgagee is not entitled to the real property, only the sums due under the note. Any overage from the total due on the note is remitted to junior interests in priority of title. As it stands, this is not a good candidate, in my opinion, for obtaining the deed. Either the borrower redeems or someone else buys it at auction.

A question to ask the Seller (not the broker who sent you this offering wanting 3%) is, what lien position is the asset in?

While the balance here is large, it is possible there are some senior liens ahead of this lien.  Obtaining a title report will verify the lien postion but I wouldn't spend money on this until the story makes a little more sense.  

Commercial loans can be different than residential loans.  What is used as collateral can vary widely. The broker here may not understand the difference and as such they have distorted some details which are of merit.  

The post implies the default is due to maturity and back taxes.  When was the last payment date?  What date of payment is the loan due for?  

I would also want to understand, is this owner-occupied property or is the owner leasing the property out.  If the property is leased out, ensure there is an assignment of leases and rents.  

The post doesn't suggest what the Seller is looking for in terms of pricing.  You want to understand, why with a fair amount of equity, is the current Mortgagee bailing out?  I wouldn't bail out on a default interest rate of 18% with a couple hundred thousand in equity.  Especially if I had properly originated documents with claims to rents and a senior position.  As the game plan there would be to simply collect what is due while helping the borrower get out from under this loan.  

I would be careful with the broker who sent you this being the portal of communication.  They too have turned too quickly to the real property and don't seem to understand the asset class all too well.  3% for sending an email is pretty expensive.  

A deed is valid once it is signed by the Grantor and accepted by the Grantee.  That creates the conveyance.  

There then exists two arguments:

1.  The Grantee (the Mortgagee) accepted the deed since they prepared and allowed it to be held as a viable deed in case something happens.  So conveyance technically took place.  
2.  A borrower's right of redemption can not be circumvented.  Often times the background story on these types of DIL setups is that the borrower was strong armed into signing the DIL through an initiation from the Mortgagee.  This type of setup would likely not hold up to scrutiny if challenged in court.  Foreclosure is the termination of the right of redemption and all borrowers have a legal right to that redemption that can not be waived.  

Just because there may exist junior liens or interests doesn't mean a DIL wouldn't be viable.  However, a Mortgagee must be careful not to merge their interests into the deed if a foreclosure may be required in order to foreclosure out those junior interests.  It certainly becomes a bit more complicated than what most perceive a DIL event to be, but it is possible to vest title alternate to the actual Mortgagee in order to both obtain property possession and still have the power to foreclose.  

Assignments are required to be recorded in order to give constructive notice of the change of interest in title to the real property through the security instrument.  Neither "has" to be recorded for it to be valid, however, in order to legally bring an action the Mortgagee must provide to the public the right to do so by way of recording the assignment letting all interested parties know who the complaining party is.  

Deeds are not the same as assignments but recording instruments serves the same purpose.

@JuanAntonio Ceballos

You will not be able to flip a NPN loan like you may believe. There is no innate value increase in an NPN unless the asset is reinstated and has some level of reliable performance or further along the foreclosure cycle for subject property state.

A $20k investment is on the low side and will create additional barriers for you. If we assume the loan will actually have to be foreclosed, which is the most likely outcome of an NPN, then you will need capital to pay for servicing, taxes, insurance and legal fees at the least. This doesn't include any type of property repair on the REO.

So the available capital pushes you closer to a loan purchase price between $10k to $15k.  With the high side there carrying a bit more risk of you not having enough money to actually get a good resale on the REO.  

In regards to using the loan as collateral for more capital, probably not realistic.  One loan doesn't make you experienced and any lender is going to want to see some experience.  In addition, NPN's are highly il-liquid, so borrowing money to buy and disposition an NPN can eviscerate any chance of a return you may have.  This is what happened to many NPN firms coming out of the crash.  Leveraging non-cash flowing assets imploded lots of large and small firms.  

If the end goal is to obtain and hold cash flowing loans, then there is really no need to mess around with loans that don't cash flow.  Just target the cash flowing loans from the start.  This is the place I suggest all newbies start.  Typically expectations for NPNs by newbies is unrealistic and what they think they are investing looks more like gambling.  

We do have a group of new and experienced loan investors that we collaborate with.  If any of that is of interest to you message me and I will plug you into that group for some more information. 

While our new POTUS has plans of taking a hacksaw to DF be warned that the changes to the federal law of Dodd Frank will have no affect on the SAFE Act laws adopted by each state.  So licensing requirements will go relatively unchanged.  The idea of becoming the bank will still be a plan that requires a license.  With that many units you will be viewed as a dealer.  In order to solicit to the public for primary use, you will hold yourself out to the public as a lender.  That requires a proper license.  

In regards to price and value, there is a fair amount of speculation from us posters.  The question that would be relevant is what sort of income would the portfolio in whole or part make for an investor at a price that suits you?  

I would weigh that into what sort of general price would the houses fetch if marketed to primary users?  

This is a valuable consideration because if the values are lower than conventional finance minimums that will increase the time on market and difficulty of exiting to a primary buyer.  Putting that many  properties on the market would have some effect but without a better understanding of the portfolio it is pretty hard to discern if that is good or bad.  

In regards to marketing the properties and disclosing such activity to your tenants, now would be a good time to review you lease agreements to ensure you have a good clause when it comes to a potential sale and give some surety to the tenants, if that is the plan, if you do want to retain them and sell to another investor.  

It is in your best interest to purchase a title report from a title company or vendor.  Typically if you team up with a local title company who will then sell you title insurance they will give you some relief on the pricing of the search.  

You can look through the title on your own but it is a skill and set of knowledge that you will need to develop a bit before you should fully rely on your own searching ability.  

Liens that are senior to the lien foreclosing would be concerning but not always deal breakers.  It depends on what type of lien is causing the foreclosure.  Super Liens, such as property taxes, wipe out all liens as they automatically take priority over all other liens.  Senior liens, such as a first position mortgage, would survive a Sheriff Sale or foreclosure auction related to a second position lien.

This idea too, understanding clouds on title and risks to your interest, is something the title company who will sell you title insurance will help you with as in order for them to insure title you will need remove clouds.  

The Seller Finance Rule of DF would allow you to Seller finance no more than 3 properties per 12 months to primary users.  I am guessing you don't want to spend 18 years liquidating these properties.  

The idea that an RMLO provides license exemption is inaccurate. In the state of Florida if you extend credit more than 3 times in one 12 month period you are required to hold a Lender's License issued by the state. RMLO's work for lenders. They can not operate on their own. Generally a Lender License is only issued to a previously licensed loan originator with two or more years of experience.  Though experience in the mortgage industry can be considered by the DFS.

Aside from a straight sale you could offer the portfolio in whole or in part to other investors with seller financing.  This would provide you with an exemption from the required licensing of being a loan originator.   Offering the properties as a portfolio with tenants and rental income to other investors does not require a loan originator and lender license.  The transaction is considered commercial in nature and the parties are expected to be sophisticated to judge their own risk.  

The idea of selling for a premium on market value is egregious.  I would get that idea out of your head.  

Terms to an investor would look something like 20% to 35% down (or more) with 10% over 10 years or not more than 20.  The tweaking of those terms would be relative to the cash flow of the portfolio or chunk of portfolio being financed.  I would keep the term of the loan short as your sale into them with financing allows them to take title and season it while building cash flow and reserves which should allow them to qualify for an institutional loan to take you out.   Depending on the strength and experience of that borrowing entity you could also seek additional collateral and security through crossing other property owned or filing a UCC over the company.

I pulled the letter from GA pertaining to license:

The Georgia Licensing Dept is requiring the servicer of GA loans to verify the owner's status (per O.C.G.A. 7-1-1001):

1.  Any person who purchases mortgage loans from a mortgage broker or mortgage lender solely as an investment and who is no in the business of brokering, making, purchasing or servicing mortgages, is NOT required to have a license to own the loan.  If the loan is on property that is a rental or vacation home, a license is NOT required to own the loan.

2.  If the loan is on a primary residential property the lender/buyer/owner of the loan, excluding the above exceptions, must have a Georgia Lender License.  Georgia Mortgage Lender License # ____________.

So to answer your question, which is a very common confusion here in BP.  NO you cannot simply outsource the license.  If you are in the business of making loans to primary residence consumers YOU, meaning you and your company, will need to be licensed in most, if not all states.  

Hiring an RMLO does not absolve you from the requirement for the license as you will be "in the business" of making loans.  Folks believing they are circumventing this fairly straightforward interpretation are just not happy accepting reality.  The point of the license requirement is to be able to control and hold accountable those people and entities which are extending consumer credit secured by real property.   

If you want to get into the business of making loans.  Go get a license.

@Marc Walowitz

Aside from you turning this thread into a sales pitch you seem to be lost in all this.  If the borrower "qualifies" for a new loan they would be able to pay on the old one.  Since they are in default on what seems to be both their first and second lien they don't "qualify" for anything.  The borrower isn't even paying their own taxes.  

Further, if they were worthy of reinstatement it would be likely the current two lenders would extend reinstatement.  The first lien is a community bank so a note sale here is a loss for them as they likely made the loan.  If they have truly come to the table to consider this sale then they don't see this as a good asset worth keeping and trying to work with the borrower.  Again, speaking against the ideas you have attempted to imply that this loan just needs to be modified and life is good.  

These types of interactions with brokers like yourself who are not actually investing in notes but wish to tell the note investor how the loan should be treated are exercises in futility.  Any borrower who can't make their payment wants a lesser payment.  That is nothing new.  They always think that will solve the problem.  If the community bank which can essentially take their interest rate on the loan to practically zero there is no working room for a private investor who has a higher return demand on their capital.  Are you going to hold a note for 2% return?  Do you think the bank is going to take a significant loss?  

Next is the notion that there is actually a deal here.  As @Wayne Brooks points out, the second lien holder is trying to get their 10% because they are gazing at a zero return if the first forecloses.  So an investor should just pony up $6,500 to watch it go down the drain?  Then to what end is the bank a ready willing and able seller?  Maybe they will sell but there is no notion of what they are willing to sell for in your post.  "Willing to entertain" is not a definitive sale.  So how can you expect anyone to judge this as the great deal you think it is?  Just because you want to help someone stay in their home doesn't mean an investor is going to capitalize your dream.  Just like it doesn't mean the borrower is going to pay after a reinstatement if they aren't paying now.  

In regards to the paperwork and fee.  I would tell you that is a bit aggressive.  Most notably, NCNDs are broker joker BS and no experienced note investor is going to bother with that crap.  If you want to earn your fee go get the number the bank is willing to sell for.  Earn your fee.  Without that, you have nothing of value and your fee is only earned by the actual investor stepping in and putting the deal together with the bank themselves.  Why should I pay you a 3% fee if I have to do all the heavy lifting?  Kudos to you for sending a very expensive email.  (Well, email and BP post, I suppose)

On one side of your mouth you are saying you work with a non-profit and on the other side you are here asking for a fee.  Non-profit housing counselor fees are between $500 and $1,000.  They don't earn fees for trading loans.  Such acts would violate their agreements and compensation structures.  
In addition, your acts here are those which broach license requirements under SAFE Act.  You are attempting to negotiate between the borrower and their lender (albeit, their "new" lender) for a loan modification or extension of credit.  You don't work for the investor buying the loan (if one was to show up) and you are not related to the borrower.  So you are a 3rd party.  As such, you need a license to do what you are attempting to do.  Even in the circumvented manner you are doing it.  

You are new to the boards.  So I will stop there.  If you want to market something post it in the marketplace.  This forum is for discussion and information only.  As such, we just had a discussion about what is wrong with your deal.